Dickman et al v Banner Life Insurance Company et al
MEMORANDUM. Signed by Judge William M Nickerson on 12/21/2016. (bmhs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
RICHARD DICKMAN et al.
Civil Action No. WMN-16-192
BANNER LIFE INSURANCE
COMPANY et al.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Before the Court is a Motion to Dismiss and to Strike filed
by Defendants Banner Life Insurance Company (Banner) and Legal &
General America, Inc. (LGA), ECF No. 38, as well as a Motion to
Dismiss, or in the Alternative, to Strike, filed by Defendant
Legal & General Group PLC (LG Group), ECF No. 39.
filed a consolidated opposition to these motions, ECF No. 42,
and Defendants filed replies.
ECF No. 50 (Banner’s and LGA’s)
and ECF No. 52 (LG Group’s).
The motions are now fully briefed.
Upon a review of the parties’ submissions and the applicable
case law, the Court determines that no hearing is necessary,
Local Rule 105.6, and that LG Group’s motion will be granted and
the motion of Banner and LGA will be granted in part and denied
I. FACTUAL AND PROCEDURAL BACKGROUND
This case relates to certain universal life insurance
policies issued by Defendant Banner and purchased by Plaintiffs
Richard J. Dickman and Kent Alderson.
Banner is a for-profit
life insurer organized under Maryland law with its principle
place of business in Frederick, Maryland.
Banner is wholly
owned by Defendant LGA, a financial holding company organized
under Delaware law with its principle place of business also in
LGA is wholly owned and controlled by
Defendant LG Group,1 which is organized under the laws of the
United Kingdom and has its principle place of business in
Under the terms of the policies at issue, the policyholders
were required to pay a minimum premium to keep the policy in
force for a guaranteed period of 20 years.
could elect to pay more than the minimum required premium and
any amount over the minimum premium would be held by the
insurance company and invested for the benefit of the
At the end of the guaranteed 20 year period,
those funds could be used to further extend insurance coverage,
be received by the policyholder if the insurance contract is
surrendered or, in the event of the insured’s death, be paid out
to the beneficiary as an additional benefit above the stated
Defendant LG Group explains in its motion to dismiss that there
is an intermediary holding company, Legal & General Overseas
Operations Ltd. (LG Overseas), which owns 100% of the stock of
LGA and whose stock is 100% owned by LG Group.
Plaintiffs Dickman and Alderson are both residents of
Virginia and purchased their universal life policies in 2002.
The policies each provided a death benefit of $300,000.
Dickman’s monthly guaranteed premium was $345.71 but he paid an
excess premium of $450 each month to accrue a higher cash value
in order to ensure coverage past the 20 year guarantee period.
Mr. Alderson’s monthly guaranteed premium was $110.162 but he
paid an excess premium of $200 each month.
At least after the
initial premium payments, those payments were made by electronic
fund transfers from Plaintiffs’ bank accounts.
With each premium paid, Banner extracted an expense fee and
a Cost of Insurance (COI) fee.
For example, on August 27, 2015,
Mr. Dickman paid his $450 excess premium and was charged $18.50
in expenses and $285.58 in COI.
to the policy’s cash value.
The remaining $145.92 was added
As of August 27, 2015, Mr.
Dickman’s policy had a total cash value of $26,345.93, which
resulted from the years of excess premiums paid and the returns
on the investment of those excess premiums.
August 5, 2015, Mr. Alderson paid his $200 excess premium and
was charged $11.00 in expense charges and $88.86 for COI.
remaining $100.14 was added to the policy’s cash value.
that date, his policy had a total cash value of $24,100.26.
Plaintiff Dickman was 65 years old when he purchased the
policy. Plaintiff Alderson was 55 years old.
In October 2015, Banner dramatically increased the COI
charged for both policies and it is that sudden increase that
gave rise to this action.
$1,859.72 per month.
Mr. Dickman’s COI jumped from $285 to
Mr. Alderson’s COI increased from
approximately $93.00 to $667.14 per month.
Because of this
increase, the monthly premiums would no longer cover the COI and
difference began to be taken from the accumulated cash values of
the Plaintiffs’ policies.
Because these new inflated COIs will
completely drain the cash value in the policies, there will be
insufficient reserves to fund the policies beyond the 20 year
Thus, Plaintiffs will receive no additional
benefit from their years of paying excess premiums.
On August 19, 2015, shortly before this increase in the COI
went into effect, Banner sent a letter to its policyholders
stating that the monthly deduction from policy account values
for COI and policy fees would be increasing.
Compl., Exs. 5,6.
That letter, however, did not specify how much it would increase
or how the increase would be calculated.
Dickman learned of the dramatic nature of the increase, his
insurance agent, who happens also to be his son, sent an email
to Banner on October 21, 2015.
In response to the email, Banner
sent a letter to Dickman’s agent representing that the increase
was the result of reevaluated assumptions regarding “the number
and timing of death claims (mortality), how long people would
keep their policies (persistency), how well investments would
perform (income) and the cost to administer policies.”
Ex. 7 at 2.
The letter further stated that unless Mr. Dickman
instructed otherwise, the premium withdrawn by electronic fund
transfer would be reduced to the minimum premium, since
remitting an excess premium would not extend coverage beyond the
20 year guarantee period.
In the alternative, the letter
suggested that Mr. Dickman could surrender the policy for its
cash value immediately prior to the COI change.
elected to surrender his policy.
Mr. Alderson did not inquire
about the COI increase and did not receive a similar letter.
Banner continued to withdraw by electric fund transfer the $200
excess premium for Mr. Alderson’s policy, even though Banner
understood that Mr. Alderson would receive no benefit from that
Plaintiffs contend that the reason presented by Banner for
the exorbitant increase in the COI is specious.
The real reason
for the increase, as alleged by Plaintiffs, was a scheme through
which Banner’s cash was funneled to its corporate parent, LGA,
and ultimately to LGA’s parent, LG Group.
The Complaint goes
into considerable detail about the nature and specifics of this
scheme but, summarized, the alleged scheme was as follows.
Essentially, LG Group needed cash because it was in a
distressed financial condition and Banner had significant cash
on its books.
LG Group wanted that cash and set up an intricate
web of wholly-owned subsidiaries to which “extraordinary
dividend” payments could be made that would ultimately find
their way upstream to LG Group.
Because the insurance industry
is a highly regulated industry, these dividends would only be
permitted if Banner held sufficient cash reserves.
the appearance of sufficient cash reserves to justify the
extraordinary dividends, Defendants created a web of whollyowned captive reinsurers, many of which were incorporated either
in states with less stringent insurance regulations than
Maryland’s or simply off-shore.
Banner then offloaded its
liabilities, i.e., its insurance policies, to these captive
reinsurers in exchange for phantom or grossly inflated assets so
that Banner would appear to have sufficient reserves to permit
the distribution of dividends.
Based upon these allegations, Plaintiffs bring the
following causes of action: Breach of Contract (Count I); Unjust
Enrichment (Count II); Conversion (Count III); and Fraud (Count
Defendant Banner has moved to dismiss Counts II, III, and
IV, but makes no arguments for dismissal of the breach of
Defendant LGA has moved to dismiss all four
The action is filed as a class action, with the class composed
of all individuals who purchased insurance policies issued by
counts, as does Defendant LG Group.
Defendant LG Group also
moves to dismiss for the additional reason that this Court lacks
personal jurisdiction over it.
All Defendants also move to
strike Plaintiffs’ allegations related to the reinsurance and
II. LEGAL STANDARD
A complaint must be dismissed if it does not allege “enough
facts to state a claim to relief plausible on its face.”
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
plausibility standard, a complaint must contain “more than
labels and conclusions” or a “formulaic recitation of the
elements of a cause of action.”
Id. at 555.
complaint must be supported by factual allegations, “taken as
true,” that “raise a right to relief above the speculative
Id. at 555–56.
The Supreme Court has explained that
“[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice” to
plead a claim.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The plausibility standard requires that the pleader show
more than a sheer possibility of success, although it does not
impose a “probability requirement.”
Twombly, 550 U.S. at 556.
Instead, “[a] claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
Iqbal, 556 U.S. at 663.
Thus, a court
must “draw on its judicial experience and common sense” to
determine whether the pleader has stated a plausible claim for
Id. at 664; see also Brockington v. Boykins, 637 F.3d
503, 505–06 (4th Cir. 2011).
This Court has held that the
Twombly/Iqbal “plausibility standard” also applies to the
pleading of jurisdictional facts.
Haley Paint Co. v. E.I.
Dupont de Nemours & Co., 775 F. Supp. 2d 790, 798-99 (D. Md.
A. Personal Jurisdiction Over LG Group
In its motion to dismiss, LG Group represents that it has
no meaningful contacts with Maryland other than its indirect
ownership of LGA and Banner.
It is incorporated in the United
Kingdom; it is governed by a board of directors which usually
meets in the United Kingdom;4 all of its executive directors and
all but one of its non-executive directors live and have their
primary place of work in the United Kingdom; its business is
conducted under the supervision and oversight of its executive
officers, all of whom currently live and have their primary
place of work in the United Kingdom.
Furthermore, LG Group
conducts no business in Maryland other than its normal dealings
On a single occasion in the last decade, the board met at LGA’s
office in Maryland.
with its indirect subsidiaries here, it is not licensed to do
business in Maryland, it has no employees who live or have their
primary place of work here, and it has no office or business
facility here, business address or telephone listing here, and
no bank account here.
In response to Plaintiffs’ suggestion in their Complaint
that this Court has personal jurisdiction over LG Group “due to
[its] continuous transactions with the in-state Defendants that
gave rise to this claim,” Compl. ¶ 16, LG Group relates the
following regarding its relationships with LGA and Banner.
Group and LGA are governed by separate boards of directors and
only one director of the five directors on LGA’s board is also a
member of LG Group’s board.
Banner’s board has seven directors,
none of whom are also on LG Group’s board.
LG Group, LGA, and
Banner each maintains separate books and records and have
separate financial and bank accounts.
While LG Group does set
financial goals and targets for its indirect subsidiaries,
including LGA and Banner, which includes targets for dividends
to be paid to their respective shareholders, those dividend
payments are ultimately approved by the boards of the entities
that make them.
LG Group also provides overall strategic
direction and guidance and, from time to time, technical
services and advice to its subsidiaries, including LGA and
In addition, certain major decisions and expenditures
by, or events involving, LG Group’s subsidiaries either are
reported to LG Group by the subsidiaries, or approval is
obtained from LG Group before they are executed.
LG Group does
not control, dictate, or oversee the day-to-day business
operations or decisions of its subsidiaries.
Based upon these facts, LG Group contends that this Court
has neither general jurisdiction nor specific jurisdiction over
There is no question that there is no general jurisdiction
over LG Group.
General jurisdiction, which permits a defendant
to be haled into court to answer for any claim, is only
established in this Court if a defendant’s affiliations with
Maryland are “so continuous and systematic as to render [it]
essentially at home” here.
Goodyear Dunlop Tires Operations,
S.A. v. Brown, 564 U.S. 915, 919 (2011).
LG Group certainly is
not “essentially at home” in Maryland.
Under specific jurisdiction, however, the “commission of
certain ‘single or occasional acts’ in a State may be sufficient
to render a corporation answerable in that State with respect to
Goodyear, 564 U.S. at 923 (quoting International
Shoe v. Washington, 326 U.S. 310, 318 (1945)).
For a court to
exercise specific jurisdiction over a defendant, “the
defendant’s suit-related conduct must create a substantial
connection with the forum State.”
1115, 1121 (2014).
Walden v. Fiore, 134 S. Ct.
The Supreme Court has found relevant two
aspects of this necessary relationship with the forum State.
“First, the relationship must arise out of contacts that the
‘defendant himself’ creates with the forum State.”
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)).
“Second, our ‘minimum contacts’ analysis looks to the
defendant's contacts with the forum State itself, not the
defendant's contacts with persons who reside there.”
(citing International Shoe, 326 U.S. at 319).
representations referenced above, LG Group argues that it has
engaged in no conduct in Maryland, related or unrelated to the
subject of this suit.
Once the defendant challenges personal jurisdiction,
the plaintiff “bears the burden of demonstrating personal
jurisdiction at every stage following such a challenge.”
Grayson v. Anderson, 816 F.3d 262, 267 (4th Cir. 2016).
their opposition, which Plaintiffs caption as an opposition to
LG Group’s motion as well as the motion filed by LGA and Banner,
Plaintiffs make no argument, whatsoever, as to whether there is
personal jurisdiction over LG Group.
Notably, in their
discussion of the applicable legal standards, they completely
omit any discussion of the standard for a motion to dismiss for
lack of personal jurisdiction under Rule 12(b)(2).
the merits of their breach of contract claim, Plaintiffs make
passing reference to “pierc[ing] the corporate veil” to permit
the attribution of Banner’s conduct to LGa and LG Group, but
they acknowledge that they have no facts to support that
argument as to LG Group.
ECF No. 42 at 32.5
In light of Plaintiffs’ failure to make any response to LG
Group’s challenge to this Court’s ability to exercise personal
jurisdiction over it, LG Group’s motion will be granted and LG
Group will be dismissed.6
B. Choice of Law
A federal court exercising diversity jurisdiction applies
the choice of law rules of the state in which it sits.
Perini/Tompkins Joint Venture v. Ace Am. Ins. Co., 738 F.3d 95,
100 (4th Cir. 2013).
For contract claims, Maryland courts
generally follow the rule of lex loci contractus, “which
Plaintiffs do point to various communications from Banner which
include LGA’s logo as evidence that the legal distinction
between LGA and Banner is “one of form rather than substance.”
Id. at 33. That argument is addressed, infra.
The Court posits that Plaintiffs’ failure to respond to the
jurisdictional challenge may reflect the acknowledgement of the
futility of such an argument. “Maryland generally is more
restrictive than other jurisdictions in allowing a plaintiff to
pierce the corporate veil” to find personal jurisdiction over a
foreign parent corporation. Haley Paint, 775 F. Supp. 2d at
797; see also, Burns & Russell Co. of Baltimore v. Oldcastle,
Inc., 198 F. Supp. 2d 687, 697-98 (D. Md. 2002) (noting that
Maryland courts apply the “agency” test in deciding to pierce
the corporate veil for jurisdictional purposes and that “test
allows a court to attribute the actions of a subsidiary
corporation to the foreign parent corporation only if the parent
exerts considerable control over the activities of the
subsidiary”); Newman v. Motorola, Inc., 125 F. Supp. 2d 717,
722-23 (D. Md. 2000) (same).
requires that the construction and validity of a contract be
determined by the law of the state where the contract is made.”
Roy v. Northwestern Nat’l Life Ins. Co., 974 F. Supp. 508, 512
(D. Md. 1997).
A contract is made where the last act necessary
to make the contract binding occurs.
principles, the parties agree.
On these general
Where they disagree is
determining what was the “last act necessary” to form the
insurance contracts at issue.
In the context of insurance contracts, Maryland courts have
held that the last act necessary is “[t]ypically . . . where the
policy is delivered and the premiums are paid.”
Inc. v. First Mercury Syndicate, Inc., 791 F. Supp. 555, 558 (D.
Md. 1992); see also, TIG Ins. Co. v. Monongahela Power Co., 58
A.3d 497, 507 (Md. Ct. Spec. App. 2012) (noting that “Maryland
appellate courts have consistently held that ‘[t]he locus
contractu of an insurance policy is the state in which the
policy is delivered and the premiums are paid,’”) (quoting
Cont’l Cas. Co. v. Kemper Ins. Co., 920 A.2d 66, 69 (Md. Ct.
Spec. App. 2007)).
Defendants represent that the policies were
delivered to Plaintiffs at their homes in Virginia and that
Plaintiffs paid their first premiums from Virginia and, thus,
Virginia law applies to Plaintiffs’ contract claims.
Without explicitly denying that the insurance contracts
were delivered or premiums paid in Virginia, Plaintiffs seem to
suggest that the last act necessary to make the contracts
binding was Banner’s execution of the Policies in its Maryland
offices on the policies’ respective “Policy Dates.”
ECF No. 42
Because Plaintiffs allege that the policies became
effective on their Policy Dates, they conclude that Banner’s
countersigning the policies in Maryland was the last act
In some prior decisions, this Court has concluded
that “the place of countersigning is held to be the place of the
making of the contract, because the counter-signature is the
last act necessary to effectuate the policy.”
Inorganic Chems. Ltd. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, PA, 893 F. Supp. 2d 715, 725–26 (D. Md. 2012)
(internal quotation marks omitted); see also, Rouse Co. v. Fed.
Ins. Co., 991 F. Supp. 460, 464–65 (D. Md. 1998) (same).
approach, however, has been expressly rejected by the Maryland
Court of Special Appeals when it reaffirmed that, under
traditional offer and acceptance rules, the “last act[s]”
necessary to form an insurance policy are the delivery of the
policy to the insured and the insured's payment of premiums.
Monongahela Power, 58 A.3d at 509; see also, Nautilus Ins. Co.
v. REMAC America, Inc., 956 F. Supp. 2d 674, 684 n.9 (D. Md.
2013) (noting the Maryland Court of Special Appeals’
reaffirmation of the delivery of policy and payment of premiums
as last acts necessary for the formation of an insurance
contract as over against the place of countersignature).
is true even where the policy contains an express provision that
it shall not be valid unless countersigned.
58 A.3d at 509.
Again, Plaintiffs do not dispute that the policies were
delivered to their homes in Virginia, nor do they make any
allegations to the contrary.
As to payment of premiums,
Plaintiffs contend in their opposition that “premiums were paid
by automatic bank withdrawal, which means that payments were
initiated by Banner and/or [LGA] from Maryland.”
ECF No. 42 at
As support for that contention, Plaintiffs cite to
paragraphs in the Complaint that allege that Plaintiffs’ monthly
premiums were made through automatic bank withdrawal.
(citing Compl. ¶¶ 24, 27).
Those paragraphs, however, make no
reference to the initial premium payment and would seem to refer
to ongoing monthly premiums.
Defendants assert in their reply
that “Plaintiffs know full well that they paid the first
premiums on the Policies by check and not by automatic bank
ECF No. 50 at 2.
The applications, at least that
of Plaintiff Alderson, would confirm that to be the case.
ECF No. 54-1 at 2 (referencing premium payment “from account of
Defendants, in their reply, rather directly call out Plaintiffs
and question their candor for implying in their opposition that
Were Plaintiffs to contend that initial premium payments
were actually made by automatic withdraw, it would not change
the choice of law analysis.
While Defendants may have
“initiated” the withdrawal from Maryland, the actual withdrawal
would have been made from Plaintiffs’ bank accounts in Virginia.
Thus, the Court concludes that Virginia law applies to
Plaintiffs’ breach of contract claims.
Furthermore, the parties
agree that whatever law applies to the breach of contract claims
also applies to the quasi-contractual unjust enrichment claims.
Thus, Virginia law also applies to Plaintiffs’ unjust enrichment
Under Maryland choice of law rules, tort claims are
governed by the law of the state in which the plaintiff suffered
Johnson v. Oroweat Foods Co., 785 F.2d 503, 510-11 (4th
“The place of injury is the place where the injury
was suffered, not where the wrongful act took place.”
511; see also, Laboratory Corp. of America v. Hood, 911 A.2d 841
(Md. 2006) (noting that Maryland continues to adhere generally
to the lex loci delicti principle in tort cases . . . [applying]
the law of the State where the injury — the last event required
initial premiums were made by automatic bank withdrawal. While
surreplies are only permitted with leave of Court, Local Rule
105.2.a, the Court would have anticipated a request for leave to
file a surreply were Plaintiffs actually alleging that the
initial premiums were paid by automatic bank withdrawals. In
the undersigned’s experience, the payment of initial insurance
premiums by that method would be rare indeed.
to constitute the tort — occurred”).
In the fraud count of
their Complaint, Plaintiffs allege that, in reliance on
Defendants’ false statements, they suffered compensable injuries
because they “continued to pay premiums and excess premiums long
after they otherwise would have,” they “did not attempt to
obtain alternative life insurance policies,” Plaintiff Dickman
“allowed Banner to withdraw the increased COI charges from his
policy’s cash value, and subsequently surrendered his policy
without obtaining the benefit for which he paid for over twelve
years,” and Plaintiff Alderson “continued to pay excess premiums
and allowed Banner to withdraw the increased COI charges from
his policy’s case value.”
Compl. ¶¶ 272, 273.
injuries were all suffered in Virginia, where Plaintiffs reside.
Accordingly, Virginia law applies to Plaintiffs’ fraud claims as
Finally, as to Plaintiffs’ conversion claims, the last act
necessary to complete the tort was the alleged misappropriation
of the funds from Plaintiffs’ accounts.
This would have
occurred when the funds were deposited in Banner’s accounts in
The parties agree that Plaintiffs’ conversion claim
is governed by the law of Maryland.
See ECF No. 42 at 11 n.6
(“Plaintiffs agree with the Defendants that Maryland law governs
the Conversion claim. . . .”).
C. Unjust Enrichment
Under Virginia law, unjust enrichment is an implied
contract action based on the principles of equity.
Freed Co., Inc., 299 S.E.2d 363, 365 (Va. 1983).
unjust enrichment, equity will effect a contract implied in law,
i.e., a quasi-contract, requiring one who accepts and receives
the services of another to make reasonable compensation for
Rosetta Stone Ltd. v. Google, Inc., 676 F.3d
144, 165 (4th Cir. 2012) (applying Virginia law, citations and
internal quotation marks omitted).
A condition precedent to the
assertion of such a claim, however, is that no express contract
exists between the parties.
Vollmar v. CSX Transp., Inc., 705
F. Supp. 1154, 1176 (E.D. Va. 1989); see also, WRH Mortg., Inc.
v. S.A.S. Associates, 214 F.3d 528, 534 (4th Cir. 2000) (“Where
a contract governs the relationship of the parties, the
equitable remedy of restitution grounded in quasi-contract or
unjust enrichment does not lie.”).
It has been long established
that “an express contract defining the rights of the parties
necessarily precludes the existence of an implied contract of a
different nature containing the same subject matter.”
Biscuit Co., Inc. v. Lloyd, 6 S.E.2d 601 (Va. 1940).
Here, the subject matter of Plaintiffs’ unjust enrichment
claim is covered by an express contract.
To recover under a
theory of unjust enrichment, Plaintiffs must demonstrate that
“(1) [Plaintiffs] conferred a benefit on [Defendants]; (2)
[Defendants] knew of the benefit and should reasonably have
expected to repay [Plaintiffs]; and (3) [Defendants] accepted or
retained the benefit without paying for its value.”
Household Fin. Corp., II, 661 S.E.2d 834 (Va. 2008).
benefit conferred on Defendants under Plaintiffs’ unjust
enrichment theory is simply the premiums and excess premiums
that Plaintiffs paid to Banner.
Compl. ¶ 252.
suggest that LGA and Banner improperly retained that benefit by
“unlawfully raid[ing] Plaintiffs’ cash value accounts under the
guise of a justified contractually mandated increase in COI.”
Id. ¶ 256.
Plaintiffs’ payment of premiums and what Banner was
to do with those payments clearly fall within the scope of the
insurance contracts and, thus, Plaintiffs’ unjust enrichment
claims cannot stand.
In support of their conversion claims, Plaintiffs allege
that they had acquired significant cash values as part of their
universal life insurance policies and that those “cash values
were specific and identifiable, and were the Plaintiffs’
Compl. ¶ 263.
They further allege that
Defendants, by “caus[ing] money to be withdrawn from Plaintiffs’
cash value accounts and deposited into [Defendants’] account . .
exerted ownership and dominion over the Plaintiffs’ personal
property in denial of the Plaintiffs’ rights.”
Id. ¶¶ 264-65.
This, Plaintiffs contend, resulted in a conversion of their
“A defendant converts a plaintiff's personal property where
the defendant intentionally exerts ‘ownership or dominion over
[the plaintiff]'s personal property in denial of or inconsistent
with the [plaintiff]'s right to [the plaintiff's personal]
Thompson v. UBS Financial Servs., Inc., 115 A.3d
125, 127 (Md. 2015) (quoting Nickens v. Mount Vernon Realty
Grp., LLC, 54 A.3d 742, 756 (Md. 2012)).
ECF No. 38-1 at 13, and Plaintiffs concede, ECF No. 42 at 20,
that the general rule is that monies are intangible and
therefore not subject to a claim for conversion.
See Lawson v.
Commonwealth Land Title Ins. Co., 518 A.2d 174, 177 (Md. Ct.
Spec. App. 1986); Allied Inv. Corp. v. Jasen, 731 A.2d 957, 966
Plaintiffs argue, however, that because they allege
that Defendants “converted specific segregated and identifiable
funds,” the assertion of a claim for conversion is appropriate.
ECF No. 42 at 20.
Maryland courts have gradually recognized a narrow
exception to the general rule that monies are not subject to a
claim of conversion.
In Lawson, the Maryland Court of Special
Appeals traced the expansion of this tort and noted that, while
an action for conversion “will lie to recover money, i.e.,
currency, as money is a chattel, the action is not maintainable
for money unless there be an obligation on the part of the
defendant to return the specific money entrusted to his care.”
518 A.2d at 176 (internal quotation omitted).
“When there is no
obligation to return the identical money, but only a
relationship of debtor or creditor, an action for conversion of
the funds representing the indebtedness will not lie against the
Id.; see also, Coots v. Allstate Life Ins. Co., 313 F.
Supp. 2d 539, 543 (D. Md. 2004) (holding that insurance proceeds
were not subject to conversion because the plaintiff “cannot,
certainly, point to any particular currency as the subject of
the purported conversion”); Darcars Motors of Silver Spring,
Inc. v. Borzym, 841 A.2d 828, 834 n.3 (Md. 2004) (opining that
the recovery of a down-payment on an automobile purchase under a
claim of conversion was not actionable because defendant “did
not have an obligation to return the specific bills used for the
In a conclusory manner, Plaintiffs alleged in their
Complaint that the cash values in their accounts were “specific
To support this allegation, they argue in
their opposition that it is “disingenuous for Defendants to
suggest that the money was not segregated and identifiable when
Banner and LGA sent annual account statements to each Plaintiff
informing them as to the precise amount in the Account Value for
each month of the policy year.”
Id. at 24.
note, the Complaint specifically alleges that “Mr. Dickman’s
Account Value was $26,345.93 as of August 27, 2015, and that Mr.
Alderson’s Account Value was $24,100.26 on August 5, 2015.”
(citing Compl. ¶¶ 25 & 29).
As Defendants correctly note, if by simply alleging that
the funds converted were of a specific sum, the rule that monies
are not subject to conversion would be swallowed by the
While the Court is required, at this stage of the
litigation, to take all factual allegations as true, it need not
accept as true a legal conclusion couched as a factual
Twombly, 550 U.S. at 555.
premiums were sent monthly to Banner by electronic fund
transfers and the excess invested and presumably earned returns
on those investments.
That a specific dollar value can be
computed for the excess premiums and investment returns does not
render the resulting cash values to be “specific and
identifiable” for purposes of a conversion claim.
will be dismissed.
The substance of Plaintiffs’ fraud claims is as follows.
In the years following Plaintiffs’ purchase of their universal
life policies, but before Plaintiffs were told of the dramatic
COI increase, Banner issued numerous financial statements and
public statements regarding its alleged financial health.
Plaintiffs maintain that these statements were false and hid
from Plaintiffs and others the eroding profitability of the
policies and financial condition of the company.
alleged that Banner knew, long before it sent notice of the COI
increases, that COI charges did not adequately account for
future experiences but instead chose to represent to
policyholders that the policies were performing adequately.
Compl. ¶ 206.
Plaintiffs further allege that, in reliance on these
statements, they continued to make excess premium payments with
the expectation that these excess payments would extend the term
of the policies beyond that guaranteed 20 year period.
resulting damages, Plaintiffs assert that they continued to pay
premiums far longer than they would have had they known the true
state of Banner’s financial health.
They also assert that they
were damaged in that their reliance on the belief that their
excess premium payments would provide them with life insurance
beyond the 20 year guarantee period deterred them from looking
for and obtaining alternative insurance protection.
In addition to arguing that the Complaint fails to
sufficiently allege the elements of a fraud claim, Defendants
make two preliminary arguments challenging that claim.
they assert that Plaintiffs lack Article III standing to assert
Second, Defendants posit that Plaintiffs’ fraud
claims are barred by Virginia’s “economic loss” or “source of
As explained below, however, the gravamen of these
preliminary arguments is closely related to the failure to state
a claim argument.
To establish Article III standing, a plaintiff must show
“(1) an injury in fact, (2) a sufficient causal connection
between the injury and the conduct complained of, and (3) a
likelihood that the injury will be redressed by a favorable
Susan B. Anthony List v. Driehaus, ––– U.S. ––––,
134 S. Ct. 2334, 2341 (2014) (internal quotations omitted).
arguing a lack of standing, Defendants contend that Plaintiffs
have failed to allege an “injury in fact” caused by the alleged
Defendants suggest that this case is analogous to Ross v.
AXA Equitable Life Insurance Co., 115 F. Supp. 3d 424 (S.D.N.Y.
2015), where the court found that insurance policyholders had no
Title III standing to challenge “shadow insurance” transactions
in connection with the insurer’s life insurance business.
Similar to Plaintiffs’ allegations here, the Ross plaintiffs
alleged that their insurer was using captive reinsurers to make
it appear that it had higher reserves than it actually had.
Like Plaintiffs here, the Ross plaintiffs alleged that the
annual financial disclosures issued by the insurer were
misleading because they failed to disclose the details of the
shadow insurance transactions thereby making the insurer’s
financial health appear stronger than it actually was.
In holding that the insured plaintiffs in Ross did not have
standing to bring a suit alleging violations of New York
insurance law, the Court concluded that the plaintiffs failed to
show that they suffered any individualized, concrete injury in
The court specifically noted that the “Complaint does not
allege that, as a result of having purchased or paid premiums
for those life insurance policies, Plaintiffs themselves were
injured, financially or otherwise.
Plaintiffs do not allege,
for example, that they paid higher premiums as a result of [the
Id. at 435.
As for the
plaintiffs’ claims that they faced the risk of harm in the
future that the insurer would be unable to pay their claims when
eventually made, the court found that theory of injury “far too
hypothetical, speculative, and uncertain to constitute an
‘imminently threatened injury’ worthy of federal judicial
Id. at 437.
Unlike the Ross plaintiffs, however, Plaintiffs here do
allege an individualized injury in fact.
Relying on Banner’s
representations as to the performance of the subject policies,
they allege that they continued to make excess payments for
which they received no benefit.
They further allege that, had
they been given an accurate picture of Banner’s financial
health, they would not have continued to make those payments for
as long as they did.
If Plaintiffs prevail on their fraud
claims, that injury would be redressed by the return of at least
the excess premiums paid after the point that Banner was aware
that the inevitable increase in the COI would engulf those
The Court finds that Plaintiffs have standing
to pursue their fraud claims.
The second potential bar to Plaintiffs’ fraud claims
posited by Defendants is Virginia’s economic loss or source of
Under that rule, “a tort claim normally cannot be
maintained in conjunction with a breach of contract claim.”
Erdmann v. Preferred Research, Inc., 852 F.2d 788, 791 (4th Cir.
1988) (internal citations omitted).
The principle underlying
the rule is that, “[t]ort law is not designed  to compensate
parties for losses suffered as a result of a breach of duties
assumed only by agreement.”
Sensenbrenner v. Rust, Orling &
Neale, Architects, Inc., 374 S.E.2d 55, 58 (Va. 1988).
“[L]osses suffered as a result of the breach of a duty assumed
only by agreement, rather than a duty imposed by law, remain the
sole province of the law of contracts.”
Filak v. George, 594
S.E.2d 610, 613 (Va. 2004).
An exception to this rule that tort claims cannot be
brought in conjunction with contract claims, however, “arises
where a party establishes an independent, willful tort that is
factually bound to the contractual breach but whose legal
elements are distinct from it.”
(internal citations omitted).
Erdmann, 852 F.2d at 791
The typical claims arising under
this exception fall into the category of “fraud in the
In these claims, “a statement, known to be
false when uttered, that is made with the intent to induce
someone to enter into a contract, can support a claim of fraud
that is independent of a breach of contract.”
Barnette v. Brook
Rd., Inc., 429 F. Supp. 2d 741, 749–51 (E.D. Va. 2006); see
also, Flip Mortgage Corp. v. McElhone, 841 F.2d 531 (4th Cir.
1988) (holding that “fraud can be found in a breach of contract
if the defendant did not intend to perform at the time of
contracting”) (citing, Colonial Ford Truck Sales v. Schneider,
325 S.E.2d 91 (Va. 1985)).
In explaining why the economic loss
rule does not bar a fraud in the inducement claim, the United
States District Court for the Eastern District of Virginia
The law of contract requires a person to abide by his
promises; the law of tort imposes a separate duty,
“i.e., the duty not to commit fraud.” [City of
Richmond, Va. v. Madison Management Group, Inc., 918
F.2d  at 447 [(4th Cir. 1990)]. Because the
defendant had breached both a contractual duty and a
legal duty imposed by tort law, the court held that
the defendant was “not entitled to the protection of
the economic loss rule, which protects only those
defendants who have breached only contractual duties.”
Tidewater Beverage Services, Inc. v. Coca Cola, Inc., 907 F.
Supp. 943, 948 (E.D. Va. 1995).
Plaintiffs’ fraud claim is certainly not a “fraud in the
inducement” claim in the typical sense in that the alleged false
statements were made well after Plaintiffs initially purchased
their insurance policies.
An inference can be made, however,
that the positive financial statements, which Plaintiffs allege
were known to be false when made, were made to induce Plaintiffs
to continue to submit their excess premium payments when they
would not have if they knew the true performance of the
The Court finds these allegations sufficiently akin
to a fraud in the inducement claim to permit Plaintiffs’ fraud
claims to escape the bar of the economic loss rule, at least at
this stage of the proceedings.
Finally, the Court finds that Plaintiffs have sufficiently
stated a claim for fraud, albeit, a claim that is limited in
To state a claim for fraud, a plaintiff “must prove by
clear and convincing evidence (1) a false representation, (2) of
a material fact, (3) made intentionally and knowingly, (4) with
intent to mislead, (5) reliance by the party misled, and (6)
resulting damage to him.”
514 (Va. 1993).
Thompson v. Bacon, 425 S.E.2d 512,
In addition, averments of fraud must meet the
heightened pleading standards of Rule 9(b).
Under that Rule, “a
party must state with particularity the circumstances
This particularity requires allegations as
to “the time, place, and contents of the false representations,
as well as the identity of the person making the
misrepresentation and what he obtained thereby.”
Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.
As set forth in the above discussion, Plaintiffs allege
that Banner continued to make annual financial disclosures that
Banner knew to be false in order to encourage its policyholders
to continue to make premium payments.
Plaintiffs allege that
they reasonably relied on those statements and continued to make
excess premium payments for which they ultimately received no
benefit and thus were damaged.
The Court finds these
allegations sufficient under Rule 9(b) to state a fraud claim
against Banner arising out of these allegedly fraudulent annual
The Court notes that the scope of Plaintiffs’ fraud claim
For example, in addition to Banner’s allegedly
false annual disclosures, Plaintiffs allege that “[a]s a result
While sufficient at this stage of the litigation, the claim may
prove difficult to establish on summary judgment or at trial.
Defendants suggest that it is likely that Plaintiffs never saw
Banner’s financial statements until they were preparing to file
this suit. ECF No. 38-1 at 22. Plaintiffs, however, allege
that they relied on these statements, Compl. ¶ 272, and
therefore it must be inferred that they did see them. That Mr.
Dickman’s son was the insurance agent might make it more likely
that Mr. Dickman, anyway, would have seen the annual statements.
of the improper and fraudulent COI increase the excess
premiums were rendered valueless.”
ECF No. 42 at 27.
opposition, they cite the August 19, 2015, letters informing
them of the increase as another example of a fraudulent
statement on which they relied to their detriment.
Id. at 31.
Whether the COI increase was improper, however, is a matter of
contract, not tort.
Furthermore, while Plaintiffs may assert
that the reason given for the increase was false, they do not
explain how the reason behind the increase would have altered
their decision to surrender the policy, as did Dickman, or
continue to make payments, as did Alderson.
The Court also finds that Plaintiffs’ fraud claim is
limited to a claim against Banner in that there are insufficient
allegations regarding any fraudulent statements of LGA to
satisfy Rule 9(b).
While Plaintiffs make general allegations
that Banner and LGA had knowledge that higher COIs would be
necessary, Compl. ¶ 207, the alleged fraudulent statements about
the policies and financial condition of Banner are those of
See, e.g., id. ¶ 207 (“Yet, Banner continued to send
annual statements that it knew to be false”), ¶ 219 (referencing
Banner’s annual statements).
Plaintiffs make a tenuous argument
that the presence of LGA’s logo on some of the correspondence
from Banner renders “any distinction between LGA and Banner . .
. merely one of form rather than substance,”
ECF No. 42 at 33,
but courts have rejected similar efforts to foist liability on a
parent for the acts of a subsidiary.
See GS2 Eng'g & Envtl.
Consultants, Inc. v. Zurich Am. Ins. Co., 956 F. Supp. 2d 686,
691 (D.S.C. 2013) (holding that the presence of a parent’s logo
on declaration pages and endorsements of insurance policies and
the use of parent’s letterhead by claim representative was
insufficient to pierce the corporate veil and impose liability
on the parent where there was no evidence that the parent wrote
the policies at issue).
F. Contract Claim Against LGA
For similar reasons, the Court finds that Plaintiffs cannot
assert breach of contract claims against LGA.
In their count
for breach of contract, Plaintiffs allege that “Plaintiffs each
entered in a contract with Banner when they purchased their life
Compl. ¶ 246 (emphasis added).
somewhat cryptic argument in their opposition, Plaintiffs
acknowledge “[o]nly on its face is it plain that the contract of
insurance is with Banner and not the other Defendants,” but go
on to speculate that “[w]hat is not obvious is which entities
within the [LG Group] corporate web are responsible for the
obligations created by Plaintiffs’ contract.”
ECF No. 42 at 32.
As Defendants observe, “‘[i]t is a general principle of
corporate law deeply ingrained in our economic and legal systems
that a parent corporation (so-called because of control through
ownership of another corporation's stock) is not liable for the
acts of its subsidiaries.’”
ECF No. 50 at 18 (quoting United
States v. Bestfoods, 524 U.S. 51, 61 (1998)).
offered no argument or authority to overrule that general
principle as to the alleged breach of contracts into which
Plaintiffs entered with Banner.
G. Motion to Strike
Under Rule 12(f), a court may strike from a pleading “any
redundant, immaterial, impertinent, or scandalous matter.”
R. Civ. P. 12(f).
As a general matter, motions to strike are
viewed with disfavor and should be denied unless “the
allegations have no possible relation to the controversy and may
cause prejudice to one of the parties.’”
Graff v. Prime Retail,
Inc., 172 F. Supp. 2d 721, 731 (D. Md. 2001) (internal quotation
Defendants seek to strike from the Complaint the
allegations related to Banner’s reinsurance and dividends
Defendants’ primary argument is that these
allegations of “sham” reinsurance transactions and improper
dividend payments are demonstrably false because these
transactions and payments were approved by the Maryland
Insurance Administration (MIA).
They also argue that these
allegations are immaterial to Plaintiffs’ causes of action, are
prejudicial, and are scandalous and could harm Banner’s
The motions to strike will be denied.
As to the truth or
falsity of the reinsurance and dividend transactions, the Court
must accept as true those allegations at this stage in the
Defendants’ argument that MIA’s approval of the
transactions assumes that corporations have never been able to
hide the truth from regulatory agencies.
accept that assumption.
The Court does not
As to materiality, these allegations
are potentially relevant to both the contract and the fraud
claim in that they provide an alternative reason for the COI
increase other than the reason given by Banner.
As to the
scandalous nature of these allegations, they are only scandalous
if untrue and, if untrue, Banner will certainly have the
opportunity to establish the falsity of those allegations.
For these reasons the Court concludes that Plaintiffs’
breach of contract and fraud claims against Banner will go
forward and the remaining claims and Defendants will be
The remaining claims will be resolved under Virginia
Furthermore, Defendants’ motions to strike will be denied.
A separate order will issue.
William M. Nickerson
Senior United States District Judge
DATED: December 21, 2016
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